Venture Funds Raise $28.6B in 2006 for Best Year Since 2001, New Report Says

NEW YORK — Venture capital fund raising reached its highest level in five years in 2006 with new funds drawing $28.6 billion, according to figures released today by the National Venture Capital Association and Thomson Financial.

The amount was $595 million higher than the total raised in 2005 and the most since 2001 when venture capitalists pulled in $38 billion.

However, fund raising slowed sharply in the fourth quarter with only $2.8 billion being closed by 37 different funds. The quarterly total was by far the lowest of the year following $6.5 billion (Q1), $13.8 billion (Q2) and $5.4 billion (Q3). It also was the smallest quarterly amount in three years.

Daniel Primack, a financial columnist for Private Equity Wire, called the fourth-quarter numbers a “major” surprise.

Last week, Dow Jones VentureOne reported venture fund raising fell 2 percent to $25 billion from 2005 figures.

Buyout and mezzanine funds, meanwhile, generated $102.9 billion in new capital in 2006, which set a record. The total topped the previous high of $96 billion set in 2005. Just as in venture capital, though, the buyout and mezzanine funding in the fourth quarter was the smallest of the year at $17.9 billion.

Given how much money had been raised earlier in the year, Mark Heesen, president of the National Venture Capital Association, said he saw good news in the fourth quarter slowdown.

“The deceleration of fundraising in private equity this quarter was expected and welcomed for a number of reasons,” Heesen said. “On the venture side, we are coming to the end of the current fundraising cycle as most firms are now turning their attention to investing the funds raised in the last three years. Additionally, the venture industry is extremely wary of bringing too much liquidity into the asset class. We want to keep fund sizes reasonable so dollars can be deployed smartly. The discipline exercised this year by the venture firms has been commendable. We hope the same holds true on the buyout side.”

An abundance of venture capital in the late 1990s, 2000 and 2001 is generally regarded as a key reason for the “dot com” and telecommunication sectors crashes in 2001 and 2002.

Although 2006 was the best year for venture fund raising since 2001, the number of new funds fell to six in the fourth quarter and to 43 for the year.

The annual total is the lowest since 2001.